Sick Australia – Trade deficits up, household and foreign debt up

Simply amazing what an inflated exchange rate will do !

160705 - Aust Monthly Trade Balance - MB

Gutting export and import competing industries right across the nation.

And there is unlikely to be any improvement on that front whilst both sides of politics give a big thumbs up to APRA allowing our banking sector to guzzle on unproductive capital inflows (ZIRP/NIRP hot money) in order to dish out super low mortgage rates to the speculator class.

In that regard Mr Morrison is a determined cheerleader.160705 - Trade

If we are serious about transitioning the economy from a lotus eating wonderland we need to stop kidding ourselves that there is any alternative to directing APRA to require the banks to wind down the unproductive capital inflow guzzling that has been keeping mortgage rates low.

That means specific direction and limits on their off shore borrowing habits to support their mortgage operations.

APRA has the powers and used them after the GFC. Now is the time (actually 4 years ago was the time) to do it again but with a clear objective of reducing wholesale borrowing related to mortgage lending operations to ZERO within 5 years.

It is all well and good to argue for a lower target rate but without APRA stopping the unproductive capital inflows those calls will lead to even faster unproductive capital inflows and a higher dollar as our banking sector seeks to deliver the lowest possible mortgage rates for a given target rate.

And before all the “bedwetters” starting complaining that if APRA restricts unproductive capital inflows for mortgage operations, mortgage rates may rise and the end of civilization will be upon us, they are free to continue to lobby the RBA to cut the target rate further or for the government to take other measures to ensure a supply of cheap credit to their mates in the speculator class.

Whether we should is another matter.

Needless to say, the fact that APRA has continued to do nothing/little and encourage the banks to keep borrowing offshore (with an implicit taxpayer guarantee) to keep mortgage rates at record lows makes it very clear that both the RBA and APRA are not really interested in the exchange rate.

What they are interested in is avoiding a debt deflation asset price collapse due to a collapse in credit growth.

To make the point even clearer – they are willing to accept an inflated exchange rate (i.e. higher than our trade performance warrants) and all the damage that causes to our export and import competing industries if that means mortgage rates will be lower and credit growth does not collapse.

Keep that in mind while waiting for the next 2.30 pm RBA target rate announcement in August 2016.

Don’t be surprised if the RBA decides that in a world of uncertainty the Debt Machine needs even lower bait rates to keep it running.

Don’t be surprised if APRA remains prepared to sacrifice a competitive exchange rate to ensure there is plenty of unproductive capital flooding in to maintain our record low mortgage rates.

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